Protective tax collection must be refunded once substantive liability is settled, with interest payable on excess recovery.

Tax collected on a protective assessment cannot be retained once the corresponding substantive liability for the same income has been settled under the Vivad se Vishwas Scheme. The Madras High Court noted that the revenue may collect only tax due in law and must delete a protective addition when the substantive addition is resolved. It further stated that refund of excess tax paid is not barred by limitation under Section 237 of the Income-tax Act, 1961. On that basis, the excess amount paid for the later year was refundable with statutory interest.

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Issues: Whether the assessee was entitled to refund of tax paid on a protective assessment for assessment year 2014-15 after the substantive dispute for assessment year 2011-12 was settled under the Vivad se Vishwas Scheme, together with statutory interest.

Analysis: The tax for the relevant income had already been settled and paid for assessment year 2011-12, and the protective demand raised for assessment year 2014-15 therefore resulted in excess collection on the same income. The Court applied the principle that the revenue can levy and collect only tax due in law and cannot retain amounts not payable. It also relied on the scheme clarification that, where the substantive addition is settled, the Assessing Officer must delete the corresponding protective addition. The Court further noted that refund of tax paid in excess is not barred by limitation under Section 237 of the Income-tax Act, 1961.

Conclusion: The assessee was entitled to refund of the excess amount paid for assessment year 2014-15 together with interest, and the writ petitions succeeded.

Final Conclusion: The protective demand could not survive once the substantive liability had been settled, and the revenue was directed to return the excess tax collected along with interest.

Ratio Decidendi: Tax collected on a protective basis cannot be retained once the corresponding substantive liability has been settled and found to have been discharged for the relevant income, and refund of such excess collection must be granted.

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